Nathan P. and Geraldine V. Morton - Page 30

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                  We find petitioners' expert's valuation                             
             unpersuasive.  First, the results of Mr. Conklin's                       
             analysis fluctuate wildly with minor changes in basic                    
             assumptions.  For example, minor changes in what                         
             Mr. Conklin terms "Incremental Working Capital" cause                    
             drastic changes in the overall value of the stock under                  
             his analysis.  "Incremental Working Capital" is measured                 
             as a percentage of the increase in sales over the prior                  
             year.  Throughout his analysis, Mr. Conklin assumed that                 
             SWI would require working capital each year equal to 7                   
             percent of the increase in sales over the previous year.                 
             However, a change in this figure of just 1 percentage                    
             point to 6 percent, leaving all of Mr. Conklin's other                   
             assumptions unchanged and applying a 7-percent growth                    
             rate, causes the price per share to increase, by our                     
             calculation, to $1,748.17.  This is troubling in light of                
             the fact that Mr. Conklin agreed on cross-examination                    
             that 6 percent was a reasonable figure for incremental                   
             working capital.  Given the importance of incremental                    
             working capital to Mr. Conklin's valuation model, and the                
             volatile effect this figure has on his overall valuation,                
             we find troubling Mr. Conklin's concession as to the                     
             reasonableness of using 6 percent.  Moreover, we note                    
             that information contained in Mr. Conklin's report                       
             suggests that SWI's incremental working capital had                      




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